Alex Salmond published this week Scotland's strategy for the oil and gas industry targeting higher long-term recovery rates from the UKCS, greater exports from the Scottish supply chain and £30 billion annual sales by 2020.
- The strategy has been produced by the Industry Leadership Group (ILG) which comprises a range of operators and supply chain companies, representative bodies, academia, and government. The ILG notes that although peak production may have passed, the oil and gas industry remains critical to the future of the UK's economy and its energy security:
- The oil and gas industry is the largest industrial investor in the UK and is responsible for almost 20% of UK corporation tax and for around 440,000 jobs, around 200,000 of which are in Scotland. The industry is supported by a sophisticated supply chain, with around 2,000 service companies in Scotland alone. Those companies are a crucial and growing part of UK exports - exports have increased from 31% of sales ten years ago to 46% today.
The UK currently relies on oil and gas for 75% of its primary
energy needs and over the next decade this will fall only
marginally to 70%, even if the UK Government meets its target of
sourcing 15% of all energy from renewable sources. Estimates
of reserves remaining vary from 12-24 billion boe and, as current
high oil prices look likely to be sustained, much of this may be
economic to produce and will thus contribute to meeting that
Against this background, it sets out a strategy for the development of the sector by 2020. The strategy is very much a "vision" but the six priority areas identified for action will each be the subject of a detailed action plan. They are:
- Supply chain – domestic
- Supply chain – international
- New opportunities
- Industry Promotion and Place
Domestic Supply Chain
The oil and gas supply chain is Scotland's most important industrial sector with 2,000 companies employing 100,000 people and making £9 billion of domestic sales. It is internationally recognised for its capability in HSE, subsea, project management, engineering design and fabrication among others. In order to sustain this market, the strategy proposes to increase company growth through measures such as increased public sector support from Scottish Enterprise and other agencies focusing on measures to increase recovery levels and innovation and on companies with significant growth prospects, and to increase awareness of future market opportunities and promote recognition of the capabilities of the sector through sector specific events.
International Supply Chain
As noted above, exports from the Scottish supply chain are growing and in 2010/11 were valued at £7.6 billion. They can make a critical contribution to the Scottish Government's aim to increase total exports from Scotland by 50% by 2017. The strategy targets 65% growth from the sector over that period. In order to achieve this it proposes to encourage and assist more companies to enter international markets, to provide market information, research and support especially in those priority markets which are identified as offering the greatest opportunities (a long list featuring most of the major oil and gas production areas) and to promote recognition of Scottish capability with IOCs and NOCs.
The UKCS is according to the report suffering from conservatism and under-investment in R&D. It is one of the slowest provinces to adopt new technology and as a result, recovery rates are low in international terms. Innovation could improve this, helping to make marginal fields economic but the oil and gas industry invests only 0.3% of sales on R&D in the UK – most major operators have located their R&D centres in other countries. The strategy aims to create a more coherent approach to oil and gas innovation, and increase investment particularly in the areas of enhanced oil recovery, ageing infrastructure, subsea technology and development of unconventional hydrocarbons.
Many of the skills of the oil and gas supply chain can also help develop other sectors such as offshore renewables, nuclear, carbon capture and storage and unconventional gas. For instance, it has been estimated that they could help to reduce the costs of offshore wind operations by 20%. In order to make the most of these opportunities the strategy suggests taking steps to increase awareness of teh oppurtunies, to promote Scottish oil and gas capabilities, to encourage dialogue between the sectors and cross sector innovation. Interestingly it is suggested that the remit of bodies such as First Point Assessment Limited (FPAL), the Industry Technology Facilitator (ITF) and LOGIC could be extended to these new sectors.
Skills continue to be a major impediment to growth in the oil and gas sector, with OPITO having estimated that an additional 10,000 people need to be recruited over the next ten years to meet likely demand. The proposals here include a more strategic approach to oil and gas skills, increasing the labour pool by promoting the industry in other sectors where redundancies may have taken place and articulating the career opportunities it offers to young people.
Industry Promotion and Place
Promoting the importance of oil and gas to our energy mix and to our economy alongside the success of the industry on the global stage would attract further investment and stimulate broader support for the industry. Investment is also needed to anchor the Scottish supply base for the long term. This will require promotion of the industry and of the attractiveness of Scotland as a place to live and work ans well as ensuring joined up thinking across local and national government and looking at investment in local infrastructure.
The strategy sets itself some goals –increasing total supply chain sales to £30 billion by 2020, of which £18 billion should be exports and a rise in recovery rates with a minimum long term target of 50%.
There are a lot of forums for industry-government collaboration in the oil and gas sector which it is easy to dismiss as mere "talking shops" and it would be equally easy to dismiss the strategy as "motherhood and apple-pie" . However, the forums which have addressed fiscal issues in the UKCS have begun to see some positive progress and if this forum can have a similar effect in relation to the supply chain, innovation and the skills base it will be worth the time spent on it. The proof of the pudding however will be in the action plans and, more importantly, the extent to which those actions are implemented.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 31/05/2012.